Post Office/Bank Can Be Held Liable For Frauds Or Wrongs Committed By Its Employees: SC: Pradeep Kumar Vs Post Master General

JUDGEMENT SUMMARY:
Pradeep Kumar vs Post Master General

DATE OF JUDGEMENT:
7th February 2022

JUDGES:
Sanjiv Khanna, J.
L. Nageswara Rao, J.
B.R. Gavai, J.

PARTIES:
Pradeep Kumar and Another (Appellant)
Postmaster General and Others (Respondent)

SUBJECT

The Apex Court holds that the Post office/Bank can be held liable for frauds or wrongs committed by its employees. This is vicarious liability where the employer is liable for the wrong committed by the employee during the course of their employment. This liability cannot be absolved by just initiating the proceeding against the said employee.

AN OVERVIEW

1. In the year 1995-96, the appellants had jointly purchased Kisan Vikas Patras (KVPs) from various post offices in the State of U.P. with varying values of denominations and maturity dates. The combined face value on maturity amounted to Rs.32.60 lacs. After a stipulated period of holding, the KVPs were encashable at the post offices before the day of maturity however, at a lower value.
2. In the February of 2000, the appellants had requested the transfer of the KVPs from one Post Office to another and were informed about the time-consuming and cumbersome procedure. The Post Master had recommended them to seek the services of an agent appointed by the State of Uttar Pradesh and associated with the post office. Allegedly the appellants were misled to believe that without the help of an agent, it was impossible to transfer the KVPs and the agent would have taken care of their interest.
3. The Agent had assured the appellants regarding her working experience and had taken the original KVPs which carried their signature on its backside along with the Monthly Income Scheme (MIS). The Agent had then executed a receipt and gave it to the appellants confirming receipt of the KVPs. She had reverted to them on her own and upon being contacted, she had assured them regarding the transfer.
4. Appellant No. 1 (Pradeep Kumar) had left the city and the Second Appellant (Raj Rani) had kept in touch with the Agent. They learnt in June of 2000, about the fraud committed by their agent and her arrest for the same. When they inquired into their KVPs, they knew that they were encashed and the entire amount was pocketed by the agent. Further inquiries suggested the involvement of the Postmaster who had recommended the Agent to them.
5. After making several representations when the Respondent had remained unresponsive, the appellant had filed a complaint under the Consumer Protection Act before National Consumer Disputes Redressal Commission (NCDRC). NCDRC had held that the respondents had acted in accordance with Rules 14 and 15 of the Kisan Vikas Patra Rules and dismissed the complaint. It held that the appellants could sue the State for appointing the Agent in case of their failure to recover the amounts due from her.

IMPORTANT PROVISIONS

General Clauses Act, 1897

• Section 3 (22)- Defines “good faith” as an act done honestly.

Negotiable Instruments (NI) Act, 1881

• Section 3- Defines Banker
• Section 8- Defines Holder
• Section 10- Definition of the payments in due course is outlined.
• Section 78- Outlines to whom the payment shall be made
• Section 82- Outline the discharge from liability of maker, acceptor or indorser’
• Section 118- Provides for the presumption relating to the NI
• Section 131-It is sketched out that the banker receiving payment of cheque isnot liable.

ISSUES

The Apex Court faced the following issues:

1. Whether the officers of the Post Office were Negligent?
2. Whether there was contributory negligence on the part of the appellants?
3. Whether the Post Office was liable for the fraud committed by its employee?

ANALYSIS OF THE JUDGMENT

1. Under Section 3 of NI Act, the post office savings bank was a banker. When payment was made to the holder of the instrument which included the accredited agent, the maker or acceptor was discharged from liability as per Section 78 of NI Act. However, the same was not applicable under Section 82(c) of the NI Act where the instrument was payable to the bearer or had been indorsed in the blank and such payment had already been made.
2. In U. Ponnappa Moothan Sons, Palghat v. Catholic Syrian Bank Limited and Others, it was held that it was left to the Court to decide whether the holder had negligent in taking the instrument without close enquiry as to the title of his transferor or the negligence was so extraordinary as to lead to the presumption that the holder had cause to believe that such title was defective. It was further held that the holder should not negligently disregard a red flag which arouses suspicion regarding the title.
3. It must be noted that even though the appellants had signed on the KVPs, they had not been endorsed in the name of Agent. Additionally, they were not presented for encashment at the post office. As per Rule 11 of KVP Rule, the KVP should not be encashed at any post office other than the one where it was issued unless the Officer-in-charge of the post office was satisfied that the person presenting the KVP for encashment was entitled to it.
4. Rule 9 of KVP Rule provided for the mandatory submission of identity slip at the time of discharge of the certificate or in case of loss, a declaration was required to be furnished to the post office. Neither was the identity slip of the appellants presented nor was the declaration furnished. No records suggested that the Officer-in-charge of the post office was satisfied that the person presenting the KVP for encashment was entitled to it. Thus, there was a violation of the said rules by the officer of Post Officer.
5. The Clause 23 of Post Office Bank Manual provided that when KVP was presented for encashment without an identity slip, the holder must make an application expressing his desire to encash the KVP with full name, address and signature of the presenter. This was again not complied with and it was enough indication that the bona fides and good faith was absent from the part of the officer of the post office.
6. In Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., the Privy Council had held that the customer had a wider duty to act with diligence which the contract must imply and the duty arose in the relationship of banker and customer as a form of tort. It was further held that by mere negligence it could not be presumed that duty of a customer of the bank was breached. To prove contributory negligence, the sine qua non was to prove that the plaintiff had remained silent regarding the matter while the plea of acquiescence was raised even though the truth was known to them.
7. In the present case, the appellants were unaware of the sinister design of the agent when the KVPs were encashed. The appellants were in touch with the Agent and were however, under the impression that the transfer of KVPs was complex and time-consuming. The Respondents had failed to prove that the appellants with full knowledge had acknowledged the correctness of the accounts in the relevant period.
8. In Punjab National Bank v. Smt. Durga Devi and Others, 1977 it was held that post offices like a bank were entitled to proceed against the officers for the loss caused due to the fraud etc. However, in such a case, if the employee involved was acting in the course of his employment and duties, the liability of the post office would not absolve. In State Bank of India (Successor to the Imperial Bank of India) v. Smt. Shyama Devi, the sine qua non for employer’s liability was that the crime was perpetrated by the employee during the course of his employment. It was established that the fraud was committed by the employee of the Post Office in the course of his employment.

CONCLUSION

The appeal was allowed by setting aside the order passed by the NCDRC. The order passed against the Against was left undisturbed. The Respondents were made to take joint liability to the maturity value of the KVPs along with 7 % simple interest per annum. Both the appellants were entitled to compensation. The appellants were required to be paid compensation within eight weeks from the date of pronouncement of the present judgement. Further in case of the failure to pay the compensation in the said time, the respondents were entitled to pay simple interest at the rate of 7% per annum on the compensation amount even.

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